Miller: Policy Adjustable

By Art PineBy Art PineDecember 20, 1977

G. William Miller, President Carter's choice to be the chairman of the Federal Reserve Board, indicated yesterday he would be willing to ease money and credit policies if the economy turns more sluggish.

Miller, nominated by Carter Wednesday to succeed outgoing chairman Arthur F. Burns, said if the economy slows "as many are projecting" in 1978, ". . . then I think that monetary policy can adjust to that condition. The natural expectation would be that there could be some reduction in interest rates."

At the same time, Miller said he thought the U.S. dollar was now "undervalued" after declining sharply in the foreign exchange markets over the past several months, and hoped that "it will be stronger and adjust to a more appropriate value" in 1978. He said the soundness of the U.S. economy "does not justify" such a decline.

He also opposed, at least in principle, the major thrust of the Humphrey-Hawkins "full employment" bill, which would set a national goal or reducing the jobless rate, now 6.9 per cent of the work force, to 4 per cent or lower by 1983. He warned that any "arbitrary" numerical goals or mandates "can be self-defeating."

Miller made his remarks in a lengthy telephone interview from a vacation hideaway in the Bahamas. It was one of the first public statements on economic policy he has made since his nomination to the Fed Post was announced. Burns' term as chairman expires Jan. 31.

The chairman-designate also indicated he plans to be less openly critical than his predecessor of the Carter administration's economic and social policies. White House sources has said Burn's frequent opposition to administration proposals was a key factor in the President's decision to replace him.

Miller said he thought maintaining the Fed's traditional independence "does not mean isolation or arrogance . . . I would think that decisions would be more logical and more intelligent if they were made in the context of a dialogue . . . It's more sensible . . . than to debate the issues . . through the media."

He also said he is generally "comfortable" with Carter's expected proposals for a taxcut and spending holddown for 1978 and beyond, although he hasn't examined them closely enough to say whether a $25 billion tax reduction is the right size. Miller said a tax cut was needed "because of a sense of equity."

Miller seemed relaxed, though blunt-spoken during the interview, speaking freely on a wide range of issues. He said he plans to remain on vacation for another few days to provide to prepare for his Senate confirmation hearings next month.

At one point, Miller disclosed that he turned down the Fed chairman's job when Vice President Mondale first mentioned the possibility in an exploratory meeting Dec. 16, but later changed his mind when Carter "persuaded" him in a personal appeal on Tuesday.

Miller said he was so surprised by the Mondale gesture that he "had not prepared myself to think of changing my activities" as chairman of Textron, Inc. - the job he held before his nomination to the Fed post. Mondale headed a White House search team assigned to recommend a new Fed chairman.

In the interview yesterday, Miller also made these points:

He sees "no conflicts" to 'Burns' remaining on the Fed board as a governor if he so chooses despite worries by some that it could undermine Miller's effectiveness as chairman. "I would be very pleased to have Dr. Burns stay on," he said. Burns, whose 14-year appointment to the Fed runs to 1984, has told reporters he will have to "think about" that prospect.

He strongly favors new business incentives to spur capital investment and increase production. "I think it would be more healthy if economic growth over the next couple of years were based on capital investment - the building of the supply side of the economy - rather than relying totally on the demand, or consumer side," he said.

While he's essentially in favor of "fair and reciprocal" trade, there are "isolated circumstances" where temporary trade restrictions may prove necessary to "stem the tide of trade dislocation" and save domestic jobs. He did not elaborate, however.

Despite his assertion that the dollar is undervalued, Miller offered no short-term solutions to help turn it round. The only thing to do, he said, would be to step up U.S. energy conservation and help "create confidence in our economy so that the inflows of capital will make up any trade gap and leave us with a more favorable balance of payments." That view essentially is in line with the administration's.

Miller renounced his earlier espousal, in 1974, of selective credit controls to help guarantee housing money during the recession then, contending that was "strong medicine for strong times" that he "would not recommend except in an unusually deep recession. The Textron chairman had proposed the move in an article in Business Week magazine.

In discussing monetary policy, Miller declined to say whether he thought the Fed had been too easy or restrictive in the past several months. "There's been a lot of wailing about interest rates," he said. "I think it takes a lot more analysis, and there are two sides to the story.

However, he said "I think the ideal is to have the right amount of money supply and the right level of interest of rates at all times that mesh in with the desire to have a strong and growing economy and a reduction of inflation and a reduction of unemployment and a sound and stable and strong dollar."

Miller repeatedly referred to all four of these goals as a group in discussing his views on economic policy yesterday. The move apparently reflected a desire to avoid the appearance of stressing one goal over another - an emphasis that has gotten other officials into trouble politically.

However, he said, "if the economy performs with a slower rate of growth, as many are projecting, then I think that monetary policy can adjust to that condition." At another point, he added: "If the economy does slow down, than I think the natural expectation would be that there could be some reduction in [interest] rates."

Meanwhile, United Press International reported that Textron's Bell Helicopter Division was accused by the General Accounting Office in 1975 of employing kickbacks on a defense contract. However, a GAO official said the activities did not involve Miller.